TASEKO ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2007

Transcription

1 W Pender St. Vancouver BC Canada V6C 2V6 Tel Fax Toll Free TASEKO ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2007 February 13, 2007, Vancouver, BC Taseko Mines Limited ( Taseko or the Company ) (TSX: TKO; AMEX: TGB) announces its financial results for the quarter ending December 31, 2006, including production and sales for the Gibraltar Mine located near Williams Lake in south-central British Columbia. All dollar amounts are stated in Canadian currency unless otherwise indicated. Overview & Highlights Taseko s cash flow from operations was $25.5 million and earnings were $11.7 million or $0.09 per share ($0.08 per share fully diluted) for the quarter ended December 31, As can be seen in the table below, cash flow from operations for the quarter increased by $28.6 million, and net earnings increased by $5.0 million, or 75%, over the comparable period in the previous fiscal year. Quarter Ended December 31, 2006 Quarter Ended December 31, 2005 Revenue $56.4 million $41.3 million Copper 1 $53.1 million $36.2 million Molybdenum 1 $3.3 million $5.1 million Cash Flow 2 $25.5 million ($3.1) million Cash Flow per Share (basic) $0.20 ($0.03) Earnings $11.7 million $6.7 million Earnings per share (basic) $0.09 $ Average realized price for sale of copper was US$2.77 per pound and for molybdenum was US$23.70 per pound. 2 Cash flow and cash flow per share are numbers used by the Company to assess its performance. They are not terms recognized under generally accepted accounting principles. Cash flow is defined as cash flow from operations including net change in working capital balances and cash flow per share is the same measure divided by the number of common shares outstanding during the period. Taseko spent $1.9 million during the quarter to advance the feasibility and environmental assessment studies on the Prosperity Project. $1 million was spent on continued exploration drilling to further expand the reserves at Gibraltar. Refurbishing of Gibraltar s Solvent Extraction and Electrowinning Plant (SX-EW) was completed at a cost of $2.9 million. This project was completed on-time and under budget; the first copper leach solution was put through the plant in late December The Company had $88.9 million in cash and equivalents at quarter end.

2 2 Gibraltar Mine First Quarter 2007 Production The following table is a summary of the operating statistics for the first quarter of fiscal 2007 compared to the same quarter in fiscal Q1 - Fiscal 2007 Q1 - Fiscal 2006 Total tons mined (millions) Tons of ore milled (millions) Stripping ratio Copper grade (%) Molybdenum grade (%MoS 2 ) Copper recovery (%) Molybdenum recovery (%) Copper production (millions lb) Molybdenum production (thousands lb) Copper production costs, net of by-product credits 2, per lb of copper Off property costs for transport, treatment (smelting & refining) & sales per lb of copper US$1.19 US$0.33 US$1.10 US$0.33 Total cash costs of production per lb of copper US$1.52 US$ Total tons mined includes sulphide ore, oxide ore, low grade stockpile material, overburden, and waste rock which were moved from within pit limit to outside pit limit during the period. 2 The by-product credit is based on pounds of molybdenum and ounces of silver sold. Total tons mined in the first quarter of fiscal 2007 were affected by a combination of the ongoing shortage of haulage truck tires, power outages caused by high winds, extreme winter conditions and the need to rehandle significant amounts of ore to provide feed for ore blending. Mine operations worked through an area of the Polyanna Pit with a high percentage of very fine ore with a high moisture content. This material affected mill throughput by continuing to plug the primary crusher, and the screens and surge bins in the secondary crushing system, resulting in a significantly reduced mill throughput. Molybdenum recovery was also affected by a number of factors relating to the copper circuit as well as operational and mechanical problems in the molybdenum recovery circuit. Inventory and Sales The average price realized for sales of copper in the quarter was US$2.77 per pound and the average price realized for sales of molybdenum in the quarter was US$23.70 per pound. Copper concentrate sales for the quarter were 28,987 wet metric tonnes ("WMT"), containing 16.9 million pounds of copper and molybdenum concentrate sales for the quarter were 139 WMT, containing 143,300 pounds of molybdenum. Copper concentrate inventory at December 31, 2006 was 4,528 WMT (2.1 million pounds of copper), and molybdenum in concentrate inventory was 9.4 WMT (9,425 pounds of molybdenum).

3 3 Mill Expansion Project Expansion and upgrade of the concentrator facility at the Gibraltar mine commenced in the third quarter of fiscal The construction of the foundations for the semi-autogenous grinding (SAG) mill and the associated facility is 75% complete. One of the ten tank flotation cells is in place and operational, and installation of the next four tanks is scheduled to begin in mid-february. The major SAG mill components are being constructed in Europe and are on-schedule for delivery during the summer of The expansion is on-schedule for commissioning in December Labour There was one lost time accident during the quarter. The number of personnel at the end of the quarter was 284, compared to 258 at the end of the same quarter of fiscal Mineral Reserves and Resources In fiscal 2006, a 61,500-foot exploration drilling program was carried out to define the mineral resources between the existing Gibraltar open pits, tie together the extensive mineralization zones, and test for additional mineralization at depth. The program was very successful, leading to a 40% increase in mineral reserves as tabulated below: Category Proven Probable Tons (millions) Gibraltar Mineral Reserves at October 1, 2006 at 0.20% Cu cut-off Cu (%) Mo (%) Cu (billions lb) Mo (millions lb) Total The resource and reserve estimation was completed by Gibraltar mine staff under the supervision of Ian S. Thompson, P. Eng., Superintendent of Engineering and a Qualified Person under National Instrument The estimates, tabulated below, are based on long term metal prices of US$1.50/lb for copper and US$8.00/lb for molybdenum and a foreign exchange of C$0.88 per US dollar. Under present mine operating parameters of 36,000 tons milled per day, these additional reserves extend the mine life to 21 years. Upon completion of the upgrade to the concentrator to 46,000 tons per day in December 2007, the Gibraltar mine life would be approximately 15 years. In addition to the above reserves, the mineral resources are estimated to be: Gibraltar Mineral Resources at 0.16% to 0.20% Cu cut-off Category Tons (millions) Cu (%) Mo (%) Measured Indicated Total There are also oxide reserves (see Taseko Annual Information Form for fiscal 2006), but these have not changed from previous estimates.

4 4 With the promising results encountered in the 2006 drilling program, a second phase drilling program was initiated in the fall of 2006, with the objective of further expanding the Gibraltar mineral reserves Production Forecast Forecasted metal production for 2007 is estimated to be between 60 and 70 million pounds of copper and one million pounds of molybdenum. Achievement of the forecast is dependent on the ability of the mine operations to deal with the fine wet ore now being encountered in the Pollyanna Pit and with the changeover from the old flotation systems to the new flotation cells being installed as part of the concentrator expansion project. The SX-EW plant is performing well under winter operating conditions and is providing targeted production levels of cathode copper. Prosperity Project Taseko holds a 100% interest in the Prosperity property, located 125 kilometres southwest of the City of Williams Lake. The property hosts a large porphyry copper-gold deposit amenable to large-scale open pit mining. On January 11, 2007, the Company announced the positive results of a pre-feasibility level study of the Project. Highlights are summarized below: Pre-tax net present value of C$300 million at 7.5% discount rate Pre-tax internal rate of return of 14% with a 6 year payback 19 year mine life at a milling rate of 70,000 tonnes per day Life of mine strip ratio of 0.8:1 Total pre-production capital cost of C$756 million in third quarter 2006 dollars Operating cost of C$5.78 per tonne milled over the life of mine Mine site production costs net of gold credits of US$0.48/lb Cu 480 million tonnes of mineral reserves, as tabulated below: Category Proven Probable Tonnes (millions) Prosperity Mineral Reserves at $4.00 Net Smelter Return/tonne cut-off Au (g/t) Cu (%) Au (millions oz) Cu (billions lb) Total The reserve estimate takes into consideration all geologic, mining, milling, and economic factors, and is stated according to Canadian standards (NI ). (Under US standards no reserve declaration is possible until a full feasibility study is completed and financing and permits are acquired.) The Proven and Probable Reserves above are included in the estimated Measured and Indicated Mineral Resources which, at a 0.14% copper-cut-off, are 1.0 billion tonnes grading 0.41 g/t gold and 0.24% copper. Further details are provided in Taseko News release dated January 10, The resource and reserve estimation was reviewed by Scott Jones, P.Eng., General Manager of Project Development for Taseko and a Qualified Person under National Instrument Mr. Jones has verified the methods used to determine grade and tonnage in the geological model, reviewed the long range mine plan, and directed the updated economic evaluation. The NI technical report documenting these results is will be filed by February 24,

5 5 Corporate Development From November 2006 to February 12, 2007 Taseko purchased an aggregate of approximately 3.3 million shares of bcmetals Corp., a publicly traded company, at an average price of $1.17 per share in connection with an unsuccessful take-over bid for bcmetals. Taseko intends to liquidate these shares in the near future. Taseko has agreed to subscribe for 7.3 million of Units of Continental Minerals Corporation ( Continental ) at $1.65 per Unit by exercise of a participation right granted in conjunction with an existing Continental note held by Taseko. This brings Taseko's aggregate holdings of Continental to 7,827,796 shares (6.9% of Continental s outstanding shares) and 7,318,182 warrants. The note is due for repayment no later than August 31, 2007 and may be repaid earlier in accordance with its terms. Taseko will continue to actively pursue other investments and strategic alliances that would be accretive to the value of the Company. Financial Results The Company s pre-tax earnings for the three months ended December 31, 2006 increased to $17.4 million, compared to $6.7 million for the three months ended December 31, The increase in pre-tax earnings is due mainly to higher sales of copper and molybdenum and higher realized metal prices for sales during the quarter compared to the same period in the prior year. The Company s after-tax earnings for the quarter increased to $11.7 million, compared to $6.7 million for the same period in fiscal The Company reported revenues of $56.4 million for the quarter, compared to $41.3 million in the first quarter of the prior year. Revenues increased due to significantly higher copper prices and more pounds of copper sold. Revenues from copper concentrate sales were $53.2 million (2006 $36.2 million) and from molybdenum concentrate sales were $3.3 million (2006 $5.1 million). Cost of sales for the quarter of fiscal 2007 was $36.6 million, compared to $32.3 million for the same period in fiscal Costs of sales consists of total production cost of $18.1 million (2006 $22.5 million) for metal produced and sold during the quarter, plus a drawdown of concentrate inventory of $12.7 million (2006 $3.9 million); silver credits of $0.5 million (2006 $0.4 million), and transportation and treatment costs of $6.3 million (2006 $6.3 million). Amortization expense for the quarter was $0.4 million compared to $0.8 million for the same period in fiscal The decrease was the result of a change in the recoverable reserves and expected mine life at Gibraltar. Mining and milling assets are amortized using the units of production method based on tons mined and milled divided by the estimated tonnage to be recovered in the mine plan. An increase in recoverable reserves results in higher estimated tonnage to be recovered in the mine plan and hence, a reduced annual amortization rate. Exploration expenses increased to $1.9 million in the first three months of fiscal 2007, compared to $0.3 million for the same period in fiscal 2006, mainly related to a higher level of activity on the Prosperity project, including preparation of an environmental impact assessment and an updated feasibility study. During the quarter, Taseko also capitalized $1.0 million of exploration expenses related to the increased reserves and life of mine at Gibraltar. General and administrative costs increased to $1.4 million in the first three months of fiscal 2007 compared to $1.0 million for the same period in fiscal The main increase was attributable to higher staffing levels and an increase in corporate activities relating to the Company s acquisition and tax planning initiatives.

6 6 Stock-based compensation increased to $0.8 million in the current quarter, compared to $0.2 million in the same period in fiscal 2006, as a result of the amortization of stock compensation on options granted during in the prior fiscal year. The Company recorded a foreign exchange gain of $1.5 million in the first quarter of fiscal 2007 mainly due to an increase in the value of the United States dollar compared to the Canadian dollar, as a significant portion of the Company s cash reserves are denominated in US dollars. This increase was partially offset by a foreign exchange loss on the Company s US denominated convertible bonds. Interest income increased to $2.8 million in the first quarter of fiscal 2007 (2006 $1.6 million) mainly due to a higher cash reserve on hand. Income taxes of $1.8 million were recorded in the quarter, compared to $nil in the same period of fiscal In addition, the Company had a future income tax expense of $3.8 million in the current quarter compared to $nil in the same period of fiscal The increase in income taxes is due mainly to the depletion of tax pools as a result of the Company becoming more profitable. The Company also has a tax provision of $21.6 million (2006 $19.6 million) recorded in the consolidated financial statements. This provision relates to an income tax expense recorded in fiscal 2004, which management believes is less than likely of ever becoming payable. For further details, see the Management Discussion and Analysis for the year ending September 30, Other Corporate Activities Taseko Adopts Shareholder Rights Plan On February 13, 2007 Taseko s Board of Directors approved the adoption of a Shareholder Rights Plan Agreement (the Rights Plan ). The Rights Plan is being adopted to ensure the fair treatment of all Taseko shareholders in connection with any take-over bid for the outstanding common shares of the Company. The Rights Plan will provide shareholders with adequate time to properly evaluate and assess a take-over bid without facing undue pressure or coercion. The Rights Plan also provides the Board with additional time to consider any take-over bid and, if applicable, to explore alternative transactions in order to maximize shareholder value. The Rights Plan is not designed to prevent take-over bids that treat Taseko shareholders fairly. Pursuant to the terms of the Rights Plan, any bid that meets certain criteria intended to protect the interests of all shareholders are deemed to be Permitted Bids. A Permitted Bid must be made by way of a take-over bid circular prepared in compliance with applicable securities laws and, in addition to certain other conditions, must remain open for 60 days. In the event a take-over bid does not meet the Permitted Bid requirements of the Rights Plan, the rights issued under the plan will entitle shareholders, other than any shareholder or shareholders involved in the take-over bid, to purchase additional common shares of Taseko at a significant discount to the market price of the common shares at that time. The Rights Plan is not being adopted in response to any proposal to acquire control of Taseko. The Rights Plan is subject to approval by the Toronto Stock Exchange and will be presented for ratification by the shareholders at the Company s annual meeting to be held by March 15, If ratified by shareholders, the Rights Plan will have a term of three years.

7 7 Taseko will host a conference call on Wednesday, February 14 at 11:00 a.m. Eastern Time (8:00 AM Pacific Time) to discuss these results. The conference call may be accessed by dialing (866) in Canada and the United States, or (617) internationally, using the passcode A live and archived audio webcast will also be available at the Company s website in the Corporate Events section of the Investor Centre. The quarterly financials will be posted with this news release on the Company s website. For further details on Taseko Mines Limited, please visit the website or contact Investor Services at (604) or within North America at Russell Hallbauer President and CEO No regulatory authority has approved or disapproved the information contained in this news release. Forward Looking Statements This release includes certain statements that may be deemed "forward-looking statements". All statements in this release, other than statements of historical facts, that address estimated resource quantities, grades and contained gold, possible future mining, exploration and development activities, are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements should not be in any way construed as guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices for metals, the conclusions of detailed feasibility and technical analyses, lower than expected grades and quantities of reserves or resources, mining rates and recovery rates and the lack of availability of necessary capital, which may not be available to the Company on terms acceptable to it or at all. The Company is subject to the specific risks inherent in the mining business as well as general economic and business conditions. For more information on the Company, Investors should review the Company's annual Form 20-F filing with the United States Securities and Exchange Commission and its home jurisdiction filings that are available at Cautionary Note Concerning Estimates of Measured and Indicated Resources This news release also uses the terms measured resources and indicated resources. Taseko advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. Cautionary Note regarding Forward Looking Statements Pre-feasibility Study, Prosperity Project All information contained in this press release relating to the contents of the pre-feasibility study, including but not limited to statements of the Prosperity Project's potential and information such as capital and operating costs, production summary, and financial analysis, are "forward looking statements" within the definition of the United States Private Securities Litigation Reform Act of The information relating to the possible construction of mine and plant facilities also constitutes such "forward looking statements." The pre-feasibility study was prepared to broadly quantify the Prosperity Project's capital and operating cost parameters and to provide guidance on the type and scale of future project engineering and development work that will be needed to ultimately define the project's likelihood of feasibility and optimal production rate. It was not prepared to be used as a valuation of the Prosperity Project nor should it be considered to be a final feasibility study. The capital and operating cost estimates which were used have been developed only to an approximate order of magnitude based on generally understood capital cost to production level relationships, and although they are based on engineering studies, these are preliminary so the ultimate costs may vary widely from the amounts set out in the pre-feasibility study. This could materially adversely impact the projected economics of the Prosperity Project. As is normal at this stage of a project, data in some areas was incomplete and estimates were developed based solely on the expertise of the individuals involved as well as the assessments of other persons who were involved with previous operators of the project. At this level of engineering, the criteria, methods and estimates are preliminary and result in a high level of subjective judgment being employed. There can be no assurance that the potential results contained in the pre-feasibility study will be realized. The following are the principal risk factors and uncertainties which, in management's opinion, are likely to most directly affect the conclusions of the prefeasibility study and the ultimate feasibility of the Prosperity Project. The mineralized material at the Prosperity project is currently classified as a measured and indicated resource, and a portion of it qualifies under Canadian mining disclosure standards as a proven and probable reserve, but readers are cautioned that no part of the Prosperity Project s mineralization is considered to be a reserve under US mining standards. For US mining standards, a full feasibility study would be required, which would require more detailed studies. Additionally all necessary mining permits would be required in order to classify the project s mineralized material as an economically exploitable reserve. There can be no assurance that this mineralized material will become classifiable as a reserve and there is no assurance as to the amount, if any, that might ultimately qualify as a reserve or what the grade of such reserve amounts would be. Final feasibility work has not been completed to confirm the mine design, mining methods and processing methods assumed in the prefeasibility study. Final feasibility could determine that the assumed mine design, mining methods and processing methods are not correct. Construction and operation of the mine and processing facilities depend on securing environmental and other permits on a timely basis. No operating permits have been applied for and there can be no assurance that required permits can be secured or secured on a timely basis. Data is not complete and cost estimates have been developed, in part, based on the expertise of the individuals participating in the preparation of the pre-feasibility study and on costs at projects believed to be comparable, and not based on firm price quotes. Costs, including design, procurement, construction and on-going operating costs and metal recoveries could be materially different from those contained in the pre-feasibility study. There can be no assurance that mining can be conducted at the rates and grades assumed in the pre-feasibility study. There can be no assurance that these infrastructure facilities can be developed on a timely and costeffective basis. Energy risks include the potential for significant increases in the cost of fuel and electricity. The pre-feasibility study assumes specified, long-term prices levels for gold and copper. The prices of these metals are historically volatile, and the Company has no control of or influence on the prices, which are determined in international markets. There can be no assurance that the prices of gold and copper will continue at current levels or that they will not decline below the prices assumed in the pre-feasibility study. Prices for gold and copper have been below the price ranges assumed in prefeasibility study at times during the past ten years, and for extended periods of time. The project will require major financing, probably a combination of debt and equity financing. Interest rates are at historically low levels. There can be no assurance that debt and/or equity financing will be available on acceptable terms. A significant increase in costs of capital could materially adversely affect the value and feasibility of constructing the project. Other general risks include those ordinary to very large construction projects, including the general uncertainties inherent in engineering and construction cost, the need to comply with generally increasing environmental obligations, and accommodation of local and community concerns. The economics of the Prosperity Project are sensitive to the US Dollar and Canadian dollar exchange rate and this rate has been subject to large fluctuations in the last several years.

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9 T A B L E O F C O N T E N T S 1.1 Date Overview Gibraltar Mine Prosperity Project Harmony Project Market Trends Selected Annual Information Summary of Quarterly Results Results of Operations Liquidity Capital Resources Off-Balance Sheet Arrangements Transactions with Related Parties Fourth Quarter Proposed Transactions Critical Accounting Estimates Change in Accounting Policies including Initial Adoption Financial Instruments and Other Instruments Other MD&A Requirements Additional Disclosure for Venture Issuers without Significant Revenue Disclosure of Outstanding Share Data Disclosure Controls and Procedures...20

10 1.1 Date This Management Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated financial statements of Taseko Mines Limited ("Taseko", or the "Company") for the three months ended December 31, 2006, and the audited consolidated financial statements for the year ended September 30, This MD&A is prepared as of February 12, All dollar figures stated herein are expressed in Canadian dollars, unless otherwise specified. This discussion includes certain statements that may be deemed "forward-looking statements". All statements in this discussion, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. 1.2 Overview Taseko is a mining and mineral exploration company with three properties located in British Columbia, Canada. These are the Gibraltar copper-molybdenum mine and two exploration projects: the Prosperity gold-copper property and the Harmony gold property. In 2006, Taseko focused on production improvements at the Gibraltar mine and updating a feasibility study on the Prosperity project. During the three months ended December 31, 2006, Taseko had an operating profit of $19.3 million, and net earnings after tax of $11.7 million, as compared to an operating profit of $8.1 million, and net earnings after tax of $6.7 million for the same period in fiscal Gibraltar Taseko s 100% owned Gibraltar mine is located north of the City of Williams Lake in south-central British Columbia. During the quarter ended December 31, 2006, the Gibraltar mine produced 10.6 million pounds of copper in concentrate and 120,000 pounds of molybdenum in concentrate and realized revenues of $53.1 million from copper and $3.3 million from molybdenum. The average price realized for sales of copper and molybdenum during the quarter were US$2.77 and US$23.70 respectively. Work continued on the expansion and upgrade of the concentrator facility at the Gibraltar mine with engineering and procurement on schedule. The upgrade and expansion project will increase the copper production of the Gibraltar mine to 100 million pounds of copper per year by Rehabilitation of Gibraltar s solvent extraction and electrowinning (SX-EW) plant is now complete. Commissioning began in December and production began in late January The SX-EW plant is expected to add approximately 3.5 million pounds to copper production in 2007 and 7 million pounds, annually, in the future. 2

11 A second phase of exploration drilling program was initiated at Gibraltar in the fall of The program is a follow up to the successful program undertaken during the 2006 fiscal year that resulted in a 74 million ton increase in the mineral reserves in the Granite Lake deposit. The new estimate of the mineral reserves and resource was announced during the quarter and a technical report was filed on SEDAR on January 26, The agreement established with Ledcor CMI Ltd. ( Ledcor ) on the Gibraltar mine has been dissolved. Effective November 5, 2006, Taseko assumed responsibility for all matters in connection with the Gibraltar Mine. Prosperity On January 11, 2007, Taseko announced the positive results of a pre-feasibility level study of its 100% owned Prosperity gold-copper project. An update of the feasibility study for the Prosperity Project, being performed by Hatch consultants, is progressing and is scheduled for completion in May Environmental assessment activities are also underway. Submission of the Environmental Impact Assessment is scheduled for April 30, Gibraltar Mine First Quarter Fiscal 2007 Sales and Inventory Copper Copper in concentrate production during the quarter was 10.6 million pounds of copper. Copper concentrate sales for the quarter were 28,987 wet metric tonnes ("WMT"), containing 16.9 million pounds of copper. The average price realized for sales of copper in the quarter was US$2.77 per pound. Copper concentrate inventory at December 31, 2006 was 4,528 WMT (2.1 million pounds of copper), a decrease in inventory from the 13,396 WMT of copper concentrate (8.4 million pounds of copper) at the end of the previous quarter. Molybdenum Molybdenum in concentrate production during the quarter was 120,000 pounds. Molybdenum concentrate sales during the quarter were 139 WMT, containing 143,300 pounds of molybdenum. The average price realized for sales of molybdenum in the quarter was US$23.70 per pound. 3

12 At the end of the quarter, molybdenum in concentrate inventory was 9.4 WMT (9,425 pounds of molybdenum), compared to 30.7 WMT (32,405 pounds of molybdenum) at the end of the previous quarter. Production The following table is a summary of the operating statistics for the first quarter of fiscal 2007 compared to the same quarter in fiscal Q1 - Fiscal 2007 Q1 - Fiscal 2006 Total tons mined (millions) Tons of ore milled (millions) Stripping ratio Copper grade (%) Molybdenum grade (%MoS 2 ) Copper recovery (%) Molybdenum recovery (%) Copper production (millions lb) Molybdenum production (thousands lb) Copper production costs, net of by-product credits 2, per lb of copper Off property costs for transport, treatment (smelting & refining) & sales per lb of copper US$1.19 US$0.33 US$1.10 US$0.33 Total cash costs of production per lb of copper US$1.52 US$ Total tons mined includes sulphide ore, oxide ore, low grade stockpile material, overburden, and waste rock which were moved from within pit limit to outside pit limit during the period. 2 The by-product credit is based on pounds of molybdenum and ounces of silver sold. Total tons mined in the first quarter of fiscal 2007 were affected by a combination of the ongoing shortage of haulage truck tires, power outages caused by high winds, extreme winter conditions and the need to rehandle significant amounts of ore to provide feed for ore blending. Mine operations worked through an area with a high percentage of very fine ore with a high moisture content. This material affected mill throughput by continuing to plug the primary crusher, and the screens and surge bins in the secondary crushing system, resulting in a significantly reduced mill throughput. Molybdenum recovery was also affected by a number of factors relating to the copper circuit as will as operational and mechanical problems in the molybdenum recovery circuit. Mill Expansion Project Expansion and upgrade of the concentrator facility at the Gibraltar mine commenced in the third quarter of fiscal The upgrade and expansion project will increase the copper production capacity of the Gibraltar mine to 100 million pounds of copper per year by 2008 by increasing throughput and improving metal recovery. The expansion consists of the addition of a 34-foot semi-autogenous (SAG) mill, conversion of three rod mills to ball mills, and replacement of the 98 small-cell rougher flotation circuit with ten 160-cubic meter 4

13 tank flotation cells. The major SAG mill components are being constructed in Europe and are on-schedule for delivery during the summer of The construction of the foundations for the mill itself and the associated facility is 75% complete. One of the ten tank flotation cells is in place and operational, and installation of the next four tanks is scheduled to begin in mid-february. The expansion is on schedule for commissioning in December Solvent Extraction /Electrowinning (SX/EW) Plant Restart The SX-EW plant was built in 1986 and produced some 84.5 million pounds of copper from 1987 to Oxidized material, requiring treatment by the SX-EW plant, had been stockpiled since the restart of mining operations at Gibraltar in Refurbishing activities at the SX-EW plant began in April 2006 and commissioning of the plant began in late December. The first 99.9% pure copper cathode was produced on January 26, 2007 from the refurbished and recommissioned SX-EW plant, located adjacent to processing plant at Gibraltar. Labour There was one lost time accident during the quarter. The number of personnel at the end of the quarter was 284, compared to 258 at the end of the same quarter of fiscal Onsite fulltime staff and hourly Ledcor employees had their employment transferred to Gibraltar as a result of the dissolution of the agreement with Ledcor on November 5, Mineral Reserves and Resources Cautionary Note to Investors Concerning Estimates of Measured and Indicated Resources The following section uses the terms measured resources and indicated resources. The Company advises investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. A 61,500-foot exploration drilling program was carried out in fiscal 2006 to define the mineral resources between the existing pits, tying together the extensive mineralization zones, and to test for additional mineralization at depth. The drilling, as well as modeling and mine plan development subsequent to September 30, 2006, led to a 40% increase in proven and probable reserves in the Granite Lake deposit. The resource and reserve estimation was completed by Gibraltar mine staff under the supervision of Ian S. Thompson, P. Eng., Superintendent of Engineering and a Qualified Person under National Instrument The estimates, tabulated below, are based on long term metal prices of US$1.50/lb for copper and US$8.00/lb for molybdenum and a foreign exchange rate of C$0.88 per US dollar. Under present mine operating parameters of 36,000 tons milled per day, these additional reserves extend the mine life to 21 years. Upon completion of the mill expansion in December 2007 to 46,000 tons per day, the Gibraltar mine life would be approximately 15 years. 5

14 The following table summarizes the Gibraltar sulphide mineral reserve: Category Proven Probable Tons (millions) Gibraltar Mineral Reserves at October 1, 2006 at 0.20% Cu cut-off Cu (%) Mo (%) Cu (billions lb) Mo (millions lb) Total In addition to the above reserves, the mineral resources are estimated to be: Category Measured Indicated Gibraltar Mineral Resources at 0.16% to 0.20% Copper cut-off Tons Cu (millions) (%) Mo (%) Total There are also oxide reserves (see Taseko Annual Information Form for fiscal 2006), but these have not changed from previous estimates. With the promising results encountered in the 2006 drilling program, a second phase drilling program was initiated in the fall of 2006, with the objective of further expanding the Gibraltar mineral reserves Production Forecast Forecasted metal production for 2007 is million pounds of copper and one million pounds of molybdenum. Achievement of the forecast is dependent on the ability of the mine operations to deal with the fine wet ore now being encountered in the Pollyanna Pit and with the changeover from the old flotation systems to the new flotation cells being installed as part of the concentrator expansion project. The SX-EW plant is performing well under winter operating conditions and is providing targeted production levels of cathode copper. 6

15 1.2.2 Prosperity Project Taseko holds a 100% interest in the Prosperity property, located 125 kilometres southwest of the City of Williams Lake. Most infrastructure is located nearby. The property hosts a large porphyry copper-gold deposit amenable to large-scale open pit mining. On January 11, 2007, the Company announced the results of a pre-feasibility level study of the Project. Highlights are summarized below: Pre-tax net present value of C$300 million at 7.5% discount rate Pre-tax internal rate of return of 14% with a 6 year payback 19 year mine life at a milling rate of 70,000 tonnes per day Life of mine strip ratio of 0.8:1 Total pre-production capital cost of C$756 million in third quarter 2006 dollars Operating cost of C$5.78 per tonne milled over the life of mine Mine site production costs net of gold credits of US$0.48/lb Cu The mineral reserves estimated from the study are: Category Tonnes (millions) Prosperity Mineral Reserves at $4.00 NSR/t Cut-off Au Cu Au (g/t) (%) (millions oz) Cu (billions lb) Proven Probable Total The reserve estimate takes into consideration all geologic, mining, milling, and economic factors, and is stated according to Canadian standards (NI43-101), (Under US standards no reserve declaration is possible until a full feasibility study is completed and financing and permits are acquired.) Pre-Production and Mine Plan The pre-feasibility level study incorporates activities during a pre-production period of two years, which include construction of the electricity transmission line; upgrading and extension of current road access and mine site clearing; development of site infrastructure, processing facilities, and a tailings starter dam; removal and storage of overburden; and pre-production waste development. The mine plan utilizes a large-scale conventional truck shovel open pit mining and milling operation. Following a one year pre-strip period, total material moved over years 1 through 16 averages 145,000 tonnes/day at a strip ratio of 1.1:1. A declining net smelter return cut-off is applied to the mill feed which defers lower grade ore for later processing. The lower grade ore is recovered from stockpile for the final 3 years of the mine plan. The life of mine strip ratio including processing of lower grade ore is 0.8:1 Processing and Infrastructure The Prosperity processing plant has been designed with a nominal capacity of 70,000 tonnes per day. The plant consists of a single 12-meter diameter semi-autogenous grinding (SAG) mill, three 7.3-meter 7

16 diameter ball mills, followed by processing steps that include bulk rougher flotation, regrinding, cleaner flotation, thickening and filtering to produce a copper-gold concentrate. Expected metallurgical recovery is 88% for copper and 69% for gold, with annual production averaging 100 million pounds copper and 235,000 ounces gold over the 19 year mine life. The copper-gold concentrate would be hauled with highway trucks to an expanded load-out facility at McLeese Lake for rail transport to various points of sale, but mostly through the Port of Vancouver for shipment to smelters/refineries around the world. Power will be supplied via a new 124 km long, 230 kv transmission line from Dog Creek on the BC Hydro Grid. Infrastructure would also include the upgrade of sections of the existing road to the site, an on-site camp, equipment maintenance shop, administration office, concentrate storage building, warehouse, and explosives facilities. Based on this study, the project would employ up to 485 permanent hourly and staff personnel. In addition, approximately 70 contractor personnel would be employed in areas including catering, concentrate haulage, explosives delivery, and bussing. Following completion of mining, the project would be closed and reclaimed according to the requirements of current legislation. Mineral Resources Cautionary Note to Investors Concerning Estimates of Measured and Indicated Resources The following section uses the terms measured resources and indicated resources. The Company advises investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. The Proven and Probable Reserves above are included in the following Measured and Indicated Mineral Resources. The Mineral Resources, as outlined by drilling to date, are tabulated below: Supporting Work Category Prosperity Mineral Resources at 0.14% Cu Cut-off Tonnes Au (millions) (g/t) Cu (%) Measured Indicated Total 1, Geology and mineral resources were reviewed and updated for the study by G.H. Giroux, MASc., P.Eng. Mineral reserves, mine planning and design aspects were developed by John Nilsson, M.Sc., P.Eng., in conjunction with staff at the Gibraltar Mine. The Mineral reserves are based on an update of a 2000 feasibility study by Kilborn SNC Lavalin, and incorporate the results of a 2006 SNC Lavalin Mill redesign and costing study. 8

17 Metallurgical testwork, completed in the early 1990 s, was conducted by Lakefield Research Limited (now called SGS Lakefield) under the supervision of Melis Engineering Ltd. This work was reviewed by SGS Lakefield, SNC Lavalin, and Taseko for the purposes of this study. Mill process and plant design work in 2000 was done in accordance with criteria provided by Melis Engineering Ltd. and completed by Kilborn SNC Lavalin under the supervision of Ross Banner, P.Eng. Greg McCunn, P.Eng., supervised the 2006 mill redesign work by SNC Lavalin. Tailings, water supply and geotechnical studies were conducted by Knight Piesold Ltd., under the supervision of Ken Brouwer, P.Eng. The resource and reserve estimation was reviewed by Scott Jones, P.Eng., General Manager of Project Development for Taseko and a Qualified Person under National Instrument Mr. Jones has verified the methods used to determine grade and tonnage in the geological model, reviewed the long range mine plan, and directed the updated economic evaluation. The NI technical report documenting these results will be filed on within 45 days. All of the above are independent of the Company except for Mr. McCunn and Mr. Jones. Current Work An updated, detailed feasibility study is currently underway. The work is being performed by Hatch Associates, incorporating the 2000 SNC Lavalin feasibility study, 2006 SNC Lavalin Mill redesign, and a re-optimized pit plan that was commissioned by Taseko in October Completion is scheduled for May Harmony Project In 2006, the Company was focused on the Gibraltar mine and the Prosperity project; therefore only maintenance activities were performed on the Harmony project. These activities will continue and assessments will be undertaken as new opportunities arise for the Harmony project. Taseko anticipates continuing to focus its resources and its efforts on the Gibraltar mine and the Prosperity project in Market Trends Copper prices had, largely, been increasing since late 2003, averaging US$1.30/lb in 2004, US$1.59/lb in 2005, US$3.03/lb in However, as a result of increasing supply, copper prices have dropped slightly in early 2007, and averaged US$2.59/lb in January. Molybdenum prices increased from US$7.60/lb to US$34/lb in 2004 and US$33/lb in Prices appear to have stabilized since early 2006, averaging US$25.53/lb over the year and averaging US$25.09/lb in January Overall, gold prices have been increasing for more than three years, averaging US$410/oz in 2004 and US$445/oz in 2005, and although there was some volatility late in the year, averaging US$604/oz in The gold price has averaged US$630/oz in January

18 1.3 Selected Annual Information The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and are expressed in Canadian dollars except common shares outstanding. As at September As at September (restated) As at September (restated) Balance Sheets Current assets $ 149,446,742 $ 58,380,111 $ 18,064,003 Mineral properties 2,628,000 3,000 3,000 Other assets 145,386, ,613, ,799,415 Total assets 297,461, ,996, ,866,418 Current liabilities 47,861,378 52,204,979 40,354,912 Other liabilities 148,665, ,682,344 95,426,763 Shareholders equity 100,933,810 29,109,555 (4,915,257) Total liabilities & shareholders equity $ 297,461,083 $ 190,996,878 $ 130,866,418 Year ended September Year ended September (restated) Year ended September (restated) Statements of Operations Revenue $ 161,900,063 $ 87,638,300 $ Cost of sales (103,627,678) (71,348,118) Amortization (3,412,048) (2,657,165) 17,296 Operating profit (loss) $ 54,860,337 $ 13,633,017 $ (17,296) Accretion of reclamation obligation 1,732,000 1,574,000 1,431,000 Exploration 3,544, ,586 4,597,968 Foreign exchange loss (gain) (288,801) 34,080 Loss on sale of equipment 2,160,992 Loss on extinguishment of capital leases 240,049 General and administration 5,286,039 2,411,688 2,693,067 Ledcor termination fee 3,500,000 Interest and other income (7,170,301) (10,547,609) (5,154,209) Interest expense 4,593,622 3,175,353 Interest accretion on convertible debt 1,280,099 1,075, ,705 Premium paid for acquisition of Gibraltar Reclamation Trust LP 5,095,249 Restart project 6,346,650 14,982,008 Stock-based compensation 3,182,102 1,129,026 5,172,244 Write down of mineral property acquisition costs 28,810,296 Earnings (loss) before income taxes $ 38,961,447 $ 5,767,773 $ (58,622,624) Current income tax expense (recovery) 4,397,000 (4,099,000) 23,744,000 Future income tax expense (recovery) 1,648,000 (13,423,000) Earnings (loss) for the year $ 32,916,447 $ 23,289,773 $ (82,366,624) Basic earnings (loss) per share $ 0.29 $ 0.23 $ (1.10) Diluted earnings (loss) per share $ 0.26 $ 0.21 $ (1.10) Basic weighted average number of common shares outstanding 113,553, ,021,655 75,113,426 Diluted weighted average number of common shares outstanding 126,462, ,732,926 75,113,426 10

19 1.4 Summary of Quarterly Results Expressed in thousands of Canadian dollars, except per-share amounts. Small differences are due to rounding. Dec Sep Jun Mar Dec Sep (restated) (1) Jun (restated) (1) Mar (restated) (1) Current assets 129, ,447 68,651 64,839 57,067 58,380 50,973 31,424 Mineral properties 3,554 2, Other assets 167, , , , , , , ,945 Total assets 300, , , , , , , ,372 Current liabilities 37,411 47,861 39,330 40,815 41,238 52,205 46,802 41,969 Other liabilities 149, ,666 97, , , , , ,392 Shareholders equity 113, ,934 66,195 47,582 38,988 29,110 12, Total liabilities and shareholders equity 300, , , , , , , ,372 Revenue (56,417) (23,196) (59,922) (37,511) (41,271) (27,699) (31,520) (28,419) Mine site operating costs 30,329 8,829 31,866 22,574 26,047 20,902 13,263 23,635 Transportation and treatment 6,305 (7,581) 8,973 6,643 6,277 4,401 5,300 3,848 Amortization Expenses: Accretion of reclamation obligation Conference and travel Consulting Corporation taxes (564) (7) Exploration 1,913 (155) 2, Interest and accretion charges 1,906 1,678 2,311 1,043 1,082 1, Ledcor termination fee 3,500 Legal, accounting and audit 163 (81) 1, Office and administration Restart project (1,215) Shareholder communications Trust and filing Interest and other (income) (2,778) (2,418) (1,579) (1,546) (1,627) (1,324) (1,553) (1,233) Loss on sale of equipment (17) Income taxes 5,653 (1,968) 5,603 2,410 (17,522) Foreign exchange (1,505) (132) 323 (448) (32) (241) Stock-based compensation , Unrealized loss on financial instrument (28) Earnings for the period 11,720 19,053 4,080 3,071 6,712 16,429 11, Earnings per share - basic Note 1. As discussed in Note 4 of the September 30, 2006 consolidated financial statements the consolidated balance sheet as at September 30, 2005 has been amended to present the liability component and equity component separately on the balance sheet. The accretion charges that were previously recorded through deficit are now recorded as interest accretion on convertible debt in the consolidated statement of operations. For the year ended September 30, 2005, this amounted to $1,075,478 (2004 $977,705). 11